Grassroots Trading Network“Capacity Building of the Poor & their Organizations – Challenges in viability & scaling up of informal sector workers’ organization in a globalized economy” September 2006 Grassroots Trading Network for Women 12 Bishopsgate, 61 Bhulabhai Desai Road, Mumbai – 400 026 India T: +91(22) 23521512 +91(22) 23538613 Email: email@example.com W: www.grassnet.org The enclosed material is the copyright of Grassroots Trading Network for Women and must not be copied in whole or in part for any purpose without the express written consent of Grassroots Trading Network for Women
GTN’s Mission and Process • GTN is a section 25 company promoted by SEWA and the Government of India • Our mission: “Linking poor producers to markets, with fair returns and sustainability” • Our process • Identify existing products/skills of the Grassroots Producer Organization we work with • Identify a buyer who needs such products/skills • Identify a business need of the buyer that the GPO can fulfill • Refine thoughts through a brainstorm with cross sector GTN well wishers • Ensure a win win, for all, and position the pros and cons • Define the roles and responsibilities of all parties concerned • Buyer provides capacity building services, to ensure the GPO produces product as per requirements in his/her long term interest LEARNING: Need reasonable volume to interest large buyers
Corporate Government Buyers GPO GPO GPO Rural Producers Rural consumers Rural knowledge GTN’s Value Proposition to GPOs Goal Create a robust, vibrant & sustainable global network of GPOs which will : - Reach new markets - Strengthen operational capabilities • Address barriers to trade • Obtain quality products at competitive prices How GTN strategy: • Attract large buyers • Sustainability by ensuring a win-win • Facilitate Trade • Create/mentor business dev. • Build Capacity - Advocate for Policy Change Problem • Poor market access a major issue facing GPOs. • Civil society’s lack of trust in corporates who could provide market access • Stakeholders lack of coordination inhibits systemic solutions Grassroots Trading Network
GTN’s established models • The Consolidator Model • The Vendor Development Model • The Rural Distribution Network (agro commodities, cottage industry from rural to rural/urban) • The Rural Distribution Model (urban products to rural markets) • The Industrial Accessories Model Focus of discussions
Middlemen Middlemen Middlemen Challenges in existing process Flow of Agricultural Goods and Currency Legend Flow of Goods Small Farmers Marketplace Corporates Flow of Currency
Grassroots Small Farmers GPO Corporates GTN’s Consolidator Model Role of GPO • Act as consolidator, procuring and aggregating goods • Provide fair prices to small and marginal farmers • Provide traceability mechanism and documentation • Provide value added services- cleaning, grading etc. SEWA farmers procure sesame seed for ITC since 2003 Legend Flow of Goods Flow of Currency Role of Grassroots • Identifying need and introducing concept to GPO and Corporate and facilitating MOU • Mentoring and facilitating partnership and improving systems for higher efficiency • Communicating the varying perspectives of both the partners and building trust Role of Corporate • Procurement and Training • Purchase price communication • Provide specifications and documentation • Reducing GPO costs • Technical inputs to increase quality and yield • Possibly provide working capital initially
Success-ITC/SGMHPartnership since ‘03 ITC benefits : • Procured 250 tonnes of cleaned and graded sesame seed with traceability documentation for exports in 2003, and continues to see value in partnership SGMH benefits: • Farmers’ realization increased to Rs. 29/kg from Rs.18/kg in 2002 • Farmers exposed to international quality standards, farm level documentation, and protocols to increase yields and quality • Farmers gained understanding of working with a large buyer • SGMH credibility enhanced, and deeper relationships established with 3200 farmers gaining in 2003 and many more now Future Prospects: • ITC now looking at cumin, amla and groundnut for 2006 season as well as organic sesame • Cargill interested in piloting wheat procurement • Negotiating with pharmaceutical company for medicinal plants NOTE: This is purely a business proposition with no funding. Intense training was provided by ITC for the first two seasons with refresher courses now. LEARNING: Need year round procurement to justify sophisticated supply chain infrastructure. Middlemen can be made redundant only if farmers requirement of inputs & sale of products are comprehensively catered to.
GTN’s experience summary • Middlemen: Middlemen are looked down upon as exploiters, however, they provide services of aggregation, supervision and certification to buyers, and carry the risk of rejections. • Need to bring in benevolent middlemen who will provide the same service without exploiting. • Need volume to attract large buyers – SEWA has done this brilliantly • Need to professionalize to bring in large buyers • Social sector lacks business acumen: Profit has not been the driver • Funds now drying up unless sustainability ensured • Need to change attitude to profit and corporates • Who provides the market? – corporates • Who do the traders, agents and middlemen sell to? – eventually corporates • Why give them the margins to sell to corporates – why not make the margins? • With profits could do that much more for constituents • Fortunately corporates also now have a need to work with civil society after focusing on urban markets for decades. • With competition and margin squeezes they are now looking at the large rural market, but do not have the requisite knowledge given their urban focus A perfect marriage is waiting to be solemnized – corporates providing markets and working with civil societies rural knowledge and base to work in rural markets.
GTN’s learnings • If you can come up with an idea that has potential, you will find support • Have managed to fulfill corporate business needs, need to now replicate the process with Government, donors and foundations to help fulfill their missions/objectives • Focus on demand side before building up inventories of poor producers who already have a problem of selling the goods they produce • Micro finance has been beneficial for reducing cost of production with access to cheaper funds, and ability to pay upfront reduces raw material cost – however need to sell goods produced remains • Private sector needs both debt and equity – micro finance provides debt – where is the equity – do rural entrepreneurs not need equity?
GTN’s perspective on donors • Donor agencies bureaucratic procedures and need for projectization, takes time and kills many a good idea • Need for Government sanctions delays projects • Donor agencies, foundations etc. have focused on capacity building of the supply side for decades – need to understand supply gaps on the demand side and then build supply side capacity • Donors, foundations and governments advise civil society to not reinvent the wheel. Are they sharing information? Do they collaborate? Organisational ego is often a problem amongst them
Social Venture Fund (SVF) • An entrepreneur with a good proposal in the private sector goes to a venture capitalist. Can we set up a SVF which like the benevolent middleman, will sustain itself, while providing cheaper equity • Instead of grants the SVF would provide equity like a rolling fund to help other similar proposals with the principal being returned • The investors to the fund would comprise of donor agencies, foundations, government departments etc. • Depending on success of the pilot fund, we could have sectoral SVF for health, education, livelihoods, cultural heritage etc • Recruit the fund management team from the private equity sector to ensure success and sustainability • Will help with practical capacity building requirements of civil society with board/trust positions being taken by the SVF
Benefits to Stakeholders of the SVF • With cross sector collaboration, the huge experience of the stakeholders would be shared and the learnings would go back to their organisations • Through timely interventions without the bureaucratic process, civil society would benefit, thus helping stakeholders achieve their objectives • Will help overcome ego problems between stakeholders • Will help address stakeholders mistrust of corporates by being involved with corporates who provide the market to the social sector • It is ironic that the stakeholders do not trust corporates, yet accept, though grudgingly, traders and middlemen who exploit this sector as supposedly there is no alternative • GTN’s models have helped civil society working with corporates. Why not try it through the Social Venture Fund – where it becomes a collective responsibility and not an individual organisation breaking from tradition